New Construction vs. Resale Property on the Costa del Sol

October 10, 2024

By David Bornstein

When buying a home in Spain or elsewhere, one of the biggest decisions you may make could be whether to choose brand new construction vs. resale property. If you are unfamiliar with real estate in Spain, there are several factors that many influence your decision that can be very different from the U.S.

New Construction: What to Expect

Now more than ever, there is a large selection of spectacular new developments on the Costa del Sol to choose from. The idea of buying property that’s new and never been lived in can be thrilling, and developers do their best to make new developments look very appealing. New construction or “new build,” as it is often called in Spain, generally means purchasing off-plan, meaning the property is under construction or not yet started. This concept might feel unfamiliar if you’re used to buying move-in-ready homes in the U.S., but it’s the norm here. U.S. buyers may be used to seeing the property built before making the decision to buy, but this is not generally the case in Spain. There are always exceptions, but finding “standing inventory” of new properties, meaning the property is just built and nearly ready to move in, can be difficult. Most if not all of the units will likely be sold before construction starts. Other things to consider:

• New Construction Standards: As construction techniques and regulations have changed over time, you may find new builds to have better materials, equipment, insulation, and other energy efficiencies than older properties.
• Personalization: Buying a new build means the opportunity to pick your finishes, making the home feel more personalized. The range of options available will of course depend on the developer and price point.
• Timelines: New builds in Spain can take up to 3 years from signing the contract (or breaking ground) to receiving the keys. It is always prudent to ask about the developer timeline when considering a new build property. Developers in Spain will often not begin construction on a large project such as a multi-unit building or a community of homes until they have sold many (or most) of the units. In this case, you would sign a contract and make a substantial initial deposit to reserve the unit, with the balance paid at completion. Builders usually have a completion bond that will protect your down payment and ensure they will finish the project once started. If you have a bank loan, this is something the bank should insist on, but you should always review such documents with your Spanish lawyer. In the case of an independent detached villa, payments are often made in phases tied to the progress of the construction, much as when building a new home with a custom builder in the US.
• Model Homes: In larger developments, there’s usually a model or show home available. This allows you to see a representational version of the finished product, so you can visualize the space and quality.

Resale Properties: Ready to Move In

The Costa del Sol is a region with magnificent established neighborhoods full of quality properties. If you are looking for something that is already built and there to reach out and touch, there is no shortage of enviable real estate options. You might find your dream villa with more Andalucian charm or a home in a more established location or even a property in need of some renovations (reformas in Spanish), but you can often move in much faster than with a new build. It is always a good idea to pay a qualified expert to do a home inspection prior to purchasing, so you know the condition of the home and any repairs you might expect or even just to know in advance how you might make it your own. It’s all more than possible. There are definite advantages to resale properties:

• Standing Inventory: You have the advantage of seeing the property built and confirming straight away that it suits your expectations.
• Immediate Possession: Once the sale is finalized, which can be as quick as a couple of months, you can move right in, making this a great option if you’re eager to settle into your new home.
• Established Areas: Resale homes are often located in well-developed neighborhoods without neighboring construction.

Costs and Taxes

When it comes to taxes, the type of property you buy affects what you’ll pay:

• New Builds: You’ll be responsible for VAT (IVA) at 10% on top of the purchase price, plus a document stamp duty (AJD) of 1.5%.
• Resale Properties: In Andalucía, the Transfer Tax (ITP) is a flat 7% on top of the purchase price for resale homes, which is something to keep in mind when budgeting.

Financing Differences

The process of securing a mortgage for a new build vs. a resale property differs slightly in how the funds are released:

• New Builds: Mortgages are approved based on the property’s final value. Payments are often staged, either with a down payment and final payment in the case of a multi-unit community or with progress payments matching construction milestones. The bank typically disburses the full loan only when the home is completed and ready for handover.
• Resale Properties: The process is more straightforward for resale homes. After the initial reservation deposit is made and a thorough legal review by all parties, the home loan is approved and the sale is then finalized. The bank then releases the full loan amount in one go, which goes to pay the seller.